General Conditions for Sellers x General Conditions for Buyers – Form Battle

With the permanent need for swifter solutions for issues that commonly arise in the business world, companies developed standard clauses to regulate matters that are the subject of their commercial relations of buying and selling products and/or services. Thus, instead of discussing in each new business deal what will be the warranty period offered for a certain product, what are the rules in the event of non-payment of the price, what is the liability between the parties, what is the applicable law, etc., companies concluded that it would be much simpler if their commercial and legal conditions were previously defined, thereby saving time and money.

With this focus, it became common for companies to send their general conditions attached to proposals, quotes and invoices, so that such conditions were considered valid for that deal, without the need for discussion of the contract.

The fact is that if, on the one hand, the seller/supplier defined their sales conditions in a standardised manner, buyers also decided to simplify their lives and created their own standardised conditions for purchasing products and/or services.

Accordingly, it frequently happens that, in the same legal transaction, the seller attaches its “General Terms and Conditions of Sale” to its proposals and/or invoices, while the buyer attaches its “General Terms and Conditions of Purchase” to its orders.

It is at this moment that the doubt arises as to which should prevail: the General Terms and Conditions of the Seller or the General Terms and Conditions of the Buyer?

In the world of commerce, transactions between sellers and buyers are governed by a set of rules and conditions known as “General Conditions.” These conditions lay the groundwork for fair and transparent exchanges, ensuring both parties understand their rights, obligations, and responsibilities. In this article, we delve into the clash of perspectives between sellers and buyers, exploring the nuances of General Conditions and how they shape the buyer-seller relationship.

Battle of The Forms

The so-called Battle of the Forms is the dispute between the Terms and Conditions (T&C) or standard clauses of different parties to the same commercial contract. This battle occurs in business-to-business (B2B) commercial relationships, especially in cases where both business partners present their respective T&C as being the rules applicable to that business relationship, and the T&C of each party have divergent and/or contradictory points with the T&C of the other party. And even if the T&C of one party establishes its prevalence over any other documents pertaining to that contractual relationship, the situation is complicated when the other party’s T&C also establishes its prevalence over other documents.

Currently, there exist several solutions to this Battle of Forms, which are determined mainly by the country where they will be applied. In the United States, for example, there is the UCC (Uniform Commercial Code), which provides its own rules for the solution of this battle. In addition, there are two solutions that are internationally considered the best for resolving the impasse. These are the “last-shot rule” and the “knock-out rule”.

The “last-shot rule” holds that the T&C that will prevail are those that were last sent to the other party, taking into consideration the chronological line of negotiations, and that were accepted by such other party (even if only tacitly).

Also according to this rule, as long as there are partial T&C acceptances, for example, with suggestions for modifications, we are still at the stage of counterproposals. Thus, the contract will only be formalised when there is acceptance, without any changes, of the last T&C sent by either of the parties.

The “knock-out rule” establishes that, in the case of divergent or contradictory rules between the T&C submitted, they end up “knocking each other out”, i.e. excluding each other. In such event, as a loophole arises, the excluded terms would be replaced by the provisions of the United Nations Convention on Contracts for the International Sale of Goods (CISG) or the applicable legislation.

Battle of The Forms in Brazil

If there is a dispute in Brazil involving a company domiciled in Brazil and another domiciled abroad, there is no express provision regarding the battle of forms in Brazilian law, but the Civil Code contains a rule regarding the formation of contracts, stating that, once accepted, the proposal acquires the force of a contract, but if the acceptance of a proposal occurs after the deadline, or with additions, restrictions or modifications, this will be understood as a counterproposal (or new proposal).

So if, for example, a seller sends its T&C in a proposal and the buyer sends its own T&C on placing the order, there is a risk that the buyer’s T&C will take precedence, if the seller has not made any subsequent disclaimers.

With a view to avoiding the risk of divergent interpretations and legal uncertainty, the ideal solution is for the parties to seek, at the time of the preliminary negotiation of the business relationship, solutions for the application of their T&C, if they find that they conflict with each other. In this respect, the parties may, for example, make mutual concessions or negotiate specific conditions or contracts for that particular transaction, thereby facilitating the resolution of any future conflict.

Even though the T&C developed by companies aim precisely to avoid long and wearisome negotiations, the fact is that the existence of mutually contradictory T&C in the same transaction may lead to undesired conflicts. Accordingly, a dialogue conducted in good faith between the parties during the negotiations is essential to make it clear what each party expects from the other, clarifying possible controversial points and thus minimising the risks of any disputes.

Charles Wowk
Partner in the Civil Area – São Paulo
charles.wowk@stussinevessp.com.br